MW I'm setting up brokerage accounts for my grandkids in my daughter's name. Is that wise - or am I asking for trouble?
By Quentin Fottrell
'The contributions are invested in mutual funds tracking the S&P 500, small-cap stocks and international equities'
"The structure is intentionally designed to prevent access too early in their lives, both due to maturity concerns and to preserve eligibility for needs-based benefits." (Photo subject is a model.)
Dear Quentin,
I will turn 68 this year and have two grandsons who will be ages 5 and 2, respectively. A third grandson is expected in late spring. Since my first grandson's birth in 2021, I have contributed $1,000 annually to a brokerage account held in my name and under my control for each grandson, and I plan to do the same for the child expected in 2026.
The contributions are invested in mutual funds tracking the S&P 500 SPX, small-cap stocks and international equities. The goal is to build a pool of starting capital for each grandson as he approaches adulthood. Potential uses include a source of funds - or collateral - for major expenditures in their 20s, such as a first home, a vehicle, education or training.
At present, their mother (my daughter) is listed as the beneficiary, though I expect to change this to each grandson individually to ensure the most favorable step-up in basis. The structure is intentionally designed to prevent access too early in their lives, both due to maturity concerns and to preserve eligibility for needs-based benefits.
I have considered setting a fixed total principal contribution for each grandson, but that would inevitably be inequitable due to differences in investment returns. A proportional principal-plus-growth approach is another option, though this could also create uneven outcomes if pegged to what the first grandson ultimately receives. Each child will likely develop a different financial personality.
How do I ensure each grandchild receives an equal amount?
The Grandfather
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You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.
You also have the opportunity to create three healthy 529 accounts for your grandchildren.
Dear Grandfather,
The execution could do with a little fine-tuning.
Assets generally receive a step-up in basis if they are included in your taxable estate at your death. The step-up is not created by naming a beneficiary, but related to estate-inclusion rules. So if you change the transfer on death or payable on death designations to your grandchildren, that won't alter the step-up. You are taking a chance that, if you die while these accounts are still in your daughter's name, that she will pass these funds on to your grandkids and, even if she does, they will be subject to a step-up in basis when she passes away if the assets remain part of her taxable estate at her death. Gifting the stocks to her children during her lifetime would void that step-up in basis.
You may need a Nobel Prize-winning mathematician and a fortune teller to predict the returns over the lifetime of your grandchildren to ensure that they each end up with an equal amount. Please don't set yourself an impossible task. You are, after all, grappling with different start dates for these brokerage accounts and different years for distribution, which also takes into account the market performance during each child's life. There comes a time when you will have to let go: One beneficiary may keep the money in the market; another might invest in real estate; while another could blow the money in Atlantic City on the slots.
You may need a Nobel Prize-winning mathematician and a fortune teller to ensure that they each end up with an equal amount.
OK, so how do you make sure they all get equal amounts? You simply give equal amounts, start at birth for all three and give the same amount of money for each child until they are 18 or 21 or 25, or older, if you see fit. Investment performance and timing are two variables that you cannot control. You can also set up a trust that continues to fund these brokerage accounts, even if you have passed on. A trust-and-estate attorney can advise you on different kinds of trusts, and whether you require more than one (to, say, help fund your grandchildren's education when that time comes). So if you give $1,000 in year one, and continue with that, you are leaving the ultimate outcome in the laps of the gods, not in your own lap.
Rather than juggling separate accounts, you could place all brokerage-account funds into one shared "superfund" - effectively a dynasty trust or generation-skipping trust - and track each child's stake using "units" (or shares). Each time you contribute, you're buying units at the pool's value on that day. Over time, each grandchild accumulates their own units. Because everyone shares the same investment returns in proportion to their units, you avoid common issues such as one child benefiting simply from being born earlier. To distribute the funds, each child's amount is calculated by multiplying the fund's value by their share of units.
Choosing a trust or 529 plan
You also have the opportunity to create three healthy 529 accounts for your grandchildren, which will do more than just help pay for their education - it will give them the expectation that they will have a college education. Instilling that belief in a young mind is priceless, particularly in families where the older generation did not have the same educational opportunities. Schwab Intelligent Portfolios $(SCHW)$ says 529 accounts are very useful for a variety of reasons. They include full control: "You're the account owner. You (not your child) have control of when and how your money is spent, even after the person you're saving for becomes an adult."
You can also set up custodial accounts, opened under the Uniform Transfer to Minors Act or the Uniform Gifts to Minors Act, for your grandkids. Custodial accounts are also common investment vehicles for children, and generally reduce eligibility for student aid more than other assets. With these types of accounts, you can take advantage of the annual gift-tax exclusion amount - which for 2026 is $19,000 per person, unchanged from 2025 - without any of it being subject to filing a gift-tax return. (If gifts exceed the annual exclusion amount, that generally creates a filing requirement rather than an immediate tax liability.)
You can also set up custodial accounts, opened under the Uniform Transfer to Minors Act or the Uniform Gifts to Minors Act.
The Farr Law Firm advocates setting up a trust or trusts for such gifts. "If you are considering transferring wealth to your children or grandchildren, a trust is usually the best method," it says. "It is almost always the best way to protect an inheritance from potential depletion due to lack of financial acumen, lawsuits, divorce, bankruptcy, medical bills and even nursing-home bills. A trust also provides you with more alternatives for determining how and when your children or grandchildren receive funds and can include general guidelines or specific restrictions on how you'd like the money to be used."
"With trusts, you can choose to distribute funds at key milestones over your beneficiary's lifetime, rather than all at once," the Farr Law Firm adds. "These can include when the beneficiary graduates from college, gets married, etc. Trusts can also be used to help your beneficiaries meet specific goals, such as buying a home or starting a business." The law firm also gives a word of caution: "If you are a parent setting aside money and a 529 for your child, but you are worried that there may not be enough funds and that your child might still need financial aid, then you should consider an Education Exclusion Trust instead of a 529."
A word of caution: Any money you deposit in such an account is an irrevocable gift, meaning you cannot take it back and that the funds have been removed from your estate. Whatever you decide, your grandchildren are three lucky kids.
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-Quentin Fottrell
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May 28, 2026 07:12 ET (11:12 GMT)
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